In October 2019, MLG co-founders Mike Sepso and Sundance DiGiovanni launched a new venture, Vindex, with $60 million (£46.6 million) in funding. When they first started working together back in the early 2000s, they couldn’t convince anybody to invest in their ideas. What happened in that period that saw them evolve from zeroes to heroes?
Sepso and DiGiovanni are known as one of the most iconic duos in the entire industry, but their working relationship started before the legacy they built with MLG and are looking to continue with Vindex.
Let’s start at the beginning.
“I got into esports in the summer of 2002,” Sepso told Esports Insider. “Sundance and I had a prior business that we were in the process of exiting at that time with another partner. It was a technical development agency where we would build consumer products for telecommunications and cable companies that were rolling out residential broadband across North America and Europe.
“We spent that summer betting on games of Halo and going to watch the New York Yankees,” he said. “At some point during the season, I told Sundance that we made ‘take the summer off money’ but not ‘retire at 28 or 29 money.’ We had to either figure out something to start now or to get jobs.”
“We would go onto message boards and find people to play Halo against; we realised pretty quickly that there was an online and small tournament grassroots scene happening organically,” he said. “We started to look around internationally and had already heard of what was happening with StarCraft in Korea, but hadn’t spent much time thinking about it because we weren’t fans of the game and had no plans of going to Korea.
“It all seemed really interesting but, while I liked playing Quake, it didn’t really translate into the mainstream,” continued Sepso. “Korea’s take on StarCraft was not going to work over here. But with all of these kids playing Halo, they’re effectively doing the same thing, but consoles were far and away the dominant gaming platform at that time across North America and the United Kingdom. We thought we could apply it to the kids that play Halo in a way that’s more in line with American sports media.”
“We thought: ‘How could we dress this up to make it look like it could sit next to the NFL and NBA, airing on ESPN, with Bud Light and Ford as sponsors?’”
The challenge wasn’t envisioning esports as the next big sport, with millions of players, spectators, and revenue alike. The hard part was engineering a plan that would turn a small, yet passionate grassroots endeavour into an international competition that people would happily spectate.
“Having identified that competitive gaming has all of the components for it to be a sport, it’s about how it’s organised, operated, and the business model,” he explained. “Our take on it was to make sure to create a product that suited the United States. Halo’s climate was a good foundation, and we could potentially use a game such as Madden to introduce the concept to a larger population while getting a larger commercial interest.
“We concluded that the best way to do that was to create a league,” he added. “We did a ton of research on the right structure for a league, and we decided upon something similar to NASCAR as games weren’t public domain. I could start a basketball league tomorrow and the NBA couldn’t stop me, but we got cease and desist letters right away from publishers – all of whom we went on to have great relationships with.
“Those were the early days.”
From there, the brand many esports players, fans, and workers affectionately knew as MLG was birthed. Starting a circuit with no investment, no real pre-existing fan base, and no prior experience in building such a competition is no small feat, but Sepso and DiGiovanni went ahead with the prospect.
“We came up with the name of Major League Gaming and launched the Pro Circuit,” Sepso said. “We wanted to organise the commercial structure through distributing media, selling sponsorships, and so on. From a consumer point of view, we thought: ‘How do we make this accessible and friendly to someone who isn’t a hardcore gamer?’”
As is reasonable to presume, there were a whole host of challenges ahead of MLG if it was to fulfil the lofty expectations that had predated it. The first challenge was collecting the capital needed to produce and execute events of a considerable level, with venues, equipment, and logistics to take care of.
“I started my career in finance and had a good network of people to go to to raise money from if we had an idea that was technology-based,” said Sepso. “When I started talking to my friends in the venture world about MLG in early 2003, they said it was the stupidest thing they had ever heard of.
“We had spent all of the money we had made that prior summer to get MLG off the ground, without getting paid, and started bootstrapping by trying to sell sponsorship deals against the event tour,” he continued.
It took a considerable amount of time for this to change. Sepso, DiGiovanni, and the small team they had put together did what they could to keep things going until they could convince investors that what they had devised was really an innovative initiative that had legs.
“We didn’t raise a single dollar for MLG until 2006,” Sepso exclaimed. “We eventually found a bigger, later-stage venture fund that was interested because we could put a lot of money to use. We went out, hit the roads, talked to venture capitalists, and got initial investment from a hedge fund that was mostly focused on trading oil.
“We went out to raise $3 million and raised $10 million,” he said. “Six months later, we found another later-stage venture fund and raised another $25 million. We went from zero investment for four years to $35 million capital invested over the course of about 12 months.”
What would you do with $35 million? Most people would have a flood of ideas on how they could spend such an amount, but as Sepso explained, it was just a door-opener – not a solution. New problems arose, like how would MLG scale suitably? Putting the money to good use in the right areas of the business is a strategic step, but not necessarily an easy one.
“How do you make it bigger? Money doesn’t solve that,” he said. “It gives you the capability to try things but it doesn’t figure it out for you. We started to diversify back into PC games, like Counter-Strike and Quake, and we tried to broaden our media footprint to have more advertising inventory to sell as a method of revenue generation.”
Despite receiving investment and thus being awarded some freedom to experiment, there were bumps in the road for MLG. “We found out that game developers and publishers liked to work with other big companies, not small companies like us,” Sepso explained.
“Our first major competitor was the Championship Gaming Series from News Corp, they owned DirecTV, BSkyB, and Star TV, and put those together to create an international esports league,” he continued. “We had Sundance, Adam Apicella, and myself producing our content; they had the entire production team from NASCAR. Then our partners, like Microsoft, wanted to work with them instead of us.
“It looked bleak for a little while.”
As those with a penchant for esports history will know, the Championship Gaming Series didn’t outlast MLG by any stretch of the imagination. It took a two-year stretch of competition until the future looked brighter for Sepso, DiGiovanni, and their employees once again.
“We had to go toe-to-toe and, after two years, we were asked if we wanted to buy it as they had the relationships and money but we understood the consumers better than anyone else,” he said.
In 2006, MLG made a major move that was, in many respects, a groundbreaking move for the yet-to-be-named esports industry. Inking a deal with a major broadcasting company, esports had its first taste of mainstream exposure in the West by being broadcast on a prominent network.
“MLG did a deal with NBC Sports,” Sepso told Esports Insider. “We filmed the entire 2006 MLG Pro Circuit for Halo as it went and turned each stop into an hour-long show. They aired every week but the events were a month apart. People who got into esports in the last decade ask me ‘When do you think this will be on television?’ but we had already done it. It was much harder to do at that time.”
There we plenty of pivotal moments for Sepso and co. at MLG throughout the years, some with much larger implications than the aforementioned broadcast deal. In 2008 came the financial crisis, which – as Sepso explained – “killed the prior esports bubble.” MLG was speaking with major media companies about taking esports and amplifying it to levels it had yet to have seen, but those ultimately fell through.
Sepso even stepped down from his day-to-day role at MLG, remaining with the company in a less hands-on capacity as he explored other opportunities. The company was taking a long time to get to where he thought it needed to be, but the break served him well and made him realise some things.
“Coming back, I saw that in order for MLG to grow, we couldn’t depend on third-parties to provide the ecosystem for us,” he said. “We’re going to have to really invest in our online tournament platform and build our own broadcast capability, YouTube was nascent at that time and there was no Twitch as it is now.
“This eventually led to investing in technology and raising more capital to be more of a tech and digital media business instead of a sports league events business,” he added. “This was the transitional moment.”
Another major, pivotal moment in MLG’s tenure – in which it rose to prominence as a major tournament organiser across many titles in esports – was its acquisition by Activision Blizzard. That took some time though and certainly was a calculated move. The reason Sepso and DiGiovanni decided to make the move was part of a problem they had identified in the company, and in its sector as a whole.
“One thing that became clear in around 2012 or 2013 was that it was going to be challenging, if not impossible, to make the business of MLG work if we didn’t own one piece of the value chain,” said Sepso.
“Once we got into Call of Duty, that’s when it got pretty obvious to me that we would either have to be a network – like a digital version of ESPN for esports – or we would have to make a game,” he added. “The latter goes back to our original business plan, when we started to raise money the first time – unsuccessfully – one of the ideas we had was to develop an esports game. We had a league but depended on others for the game.
“As we were having that conversation, Bobby Kotick called me,” he continued. “We had high-level, ongoing conversations. He had been watching us and thought we were building a big business, but we didn’t own a game and we were going to need to.”
Once MLG had successfully boarded Activision Blizzard and the team took on positions at the game developer, a new challenge presented itself for Sepso. Having observed many sports leagues in the early days of MLG, and having isolated a weakness for tournament organisers in that they typically don’t owe part of the value chain, he sought out to address that sore spot.
“I firmly believed that the NBA and NFL franchise system is the absolute best commercial system for sports,” Sepso explained.
“I fundamentally thought if you could match what MLG had in league operation capability, media production and distribution capability, and understanding the audience with a big portfolio of games, you could create franchise leagues around each of the games,” he added. “This is what led to the acquisition talks and, eventually, folding MLG into a division that I ran and what led to the Overwatch League and Call of Duty League.”
It didn’t take long at all for Sepso to dive head-first into this new venture, quickly devising an area he would address for the foreseeable future. On his very first day of work at Activision Blizzard, he was tasked by Kotick to create an NFL system and ESPN system for video games.
“I didn’t create the Overwatch League. I helped create the blueprint for what it was going to be and helped introduce the concept into the entire company, and then brought in the people that could execute it,” Sepso explained.
“Having that launch and being successful was great, but I didn’t want to keep doing that,” he said. “That’s what I went there to do and I still had half my contract left. Bobby told me to prove it works by building the commercial team, and it was wildly successful right out of the gate before a match was played purely because of the structure.
“The franchise system worked, we sold a ton of sponsorships and made it commercially successful, and we thought all of the other game publishers would do the same – Riot Games produced the LCS and LEC not long after,” he concluded. “This is where the idea of Vindex came from.”
Vindex was introduced to the world in the latter half of 2019, defined with somewhat-vague terms that weren’t thoroughly explained to those inhabiting the esports landscape. Upon speaking with Sepso, it became suddenly apparent as to the gap he and DiGiovanni are looking to fill with the company – and it does indeed link back to MLG and its eventual sale to Activision Blizzard.
“If all intentions are on pro leagues and publishers are pursuing them, we can provide creative services, strategic services, technology, and broadcast capability; it requires having one partner that can execute globally,” he explained.
“We can solve a lot of the complex problems but it’s going to require a lot of capital,” Sepso added. “I had a background thesis of starting by building and aggregating the best production studios. Being able to invest in Adam when he pulled his team out of Activision Blizzard [to create Esports Engine] and acquiring Next Generation Esports were the foundational elements that set off the Vindex strategy and allowed us to raise $80 million.”
Now that Vindex has laid its foundation by bringing on much of the original MLG team, as well as other experienced individuals in the production space, it’s time to move onto the next phase of Sepso and DiGiovanni’s master plan.
“Now we’re in the midst of getting into the second part of the strategy,” he explained. “We’re continuing to grow the solutions business and now we’re investing capital and operations expertise in helping to organise and make sense of amateur esports systems.
“That’s the next step for us.”
This is an alternative version of a piece that features in the fifth edition of The Esports Journal, the definitive esports industry magazine.
Read the original post: From MLG to Vindex: The story of Mike Sepso